Press Release No. 16/438

IMF Staff Completes 2016 Article IV Mission to Argentina

September 29, 2016

• Upon taking office, Argentina’s new government faced pervasive macroeconomic imbalances, microeconomic distortions, and a weakened institutional framework.
• The government has made important progress with its ambitious and much needed transition toward a better economic policy framework.
• The government should be commended for its clear commitment to bring inflation to single digit levels and to reduce the fiscal deficit.

An International Monetary Fund (IMF) staff team led by Mr. Roberto Cardarelli visited Argentina from September 19–29, 2016 to undertake the first Article IV Consultation since 2006. The mission met with senior officials as well as a range of representatives of the private sector and academics.

At the end of the visit, Mr. Cardarelli made the following statement:

“ Upon taking office in December last year, Argentina’s new government faced pervasive macroeconomic imbalances, microeconomic distortions, and a weakened institutional framework. Consumption levels were unsustainably high, investment reached historically low levels, and large fiscal deficits were financed by money creation, which lead to high inflation. Distortions at the micro level included an extensive network of administrative controls (for example, trade barriers, foreign exchange restrictions, and price controls) and a business environment that eroded competitiveness and undermined medium-term growth.

“Confronted with this difficult situation, the new government began an ambitious and much needed transition toward a better economic policy framework. Important progress has been made. The peso is now market determined and exchange controls have been eliminated. The increase in utility tariffs has brought prices more in line with underlying costs. The settlement with creditors has allowed a return to international capital markets by both the private and public sector. Medium-term fiscal and inflation targets have been announced in conjunction with a transition toward a modern system of inflation targeting. Finally, the national statistics agency is being rebuilt, allowing for the publication of improved and credible data on inflation, trade, the labor market, and output.

“The reversal of these serious imbalances and distortions, while necessary to lay the foundation for robust future growth, unavoidably had an adverse near-term impact on the Argentine economy. In this context, the central focus of discussions during the course of this Article IV Consultation was on the authorities’ measures to restore sustained and equitable growth, boost job creation, and protect the more vulnerable segments of society.

“The government should be commended for its clear commitment to bring inflation to single digit levels and to reduce the fiscal deficit. The pace and composition of this shift in the fiscal position and the speed of disinflation will need to be sensitive to the impact on growth, jobs, and on the most vulnerable segments of the Argentine population. A medium-term fiscal plan that guides expectations would be valuable in this adjustment. Strengthening public expenditure management, further improving governance, and increasing the efficiency of public spending would create space for a much needed reduction of the tax burden while continuing reducing the fiscal imbalances. Finally, strong, sustained, and equitable growth will require the implementation of an ambitious agenda of supply-side reforms. Such reforms will create an environment that is more conducive to private investment and will generate significant medium-term dividends in terms of more and better jobs, as well as a steady improvement in living standards for Argentina’s population.

“The mission would like to thank the authorities for the frank and open dialogue. It is expected that the IMF’s Executive Board will consider the 2016 Article IV consultation at the end of November.”